A Monopolistically Competitive Firm Misallocates Resources Because

question 88

Multiple Choice

A monopolistically competitive firm misallocates resources because:

• A) the firm is not maximising its profit.
• B) the firm is producing too little output at inflated prices.
• C) the firm earns positive economic profit in the long run.
• D) the firm passes the standard efficiency test.

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Definitions:

Consumer Price Index

A measure that examines the weighted average of prices of a basket of consumer goods and services, such as transportation, food, and medical care, indicating the level of inflation.

Market Basket

A collection of goods and services used to monitor price changes for consumer expenditures, often used in calculating inflation indices.

Base Year

A specific year against which economic growth is measured, serving as a benchmark for real value comparisons over time.

Price Indexes

Price indexes are statistical measures that reflect the average change in prices over time of a basket of goods and services, used to gauge inflation or deflation in an economy.